Share price reactions to dividend announcements: The Double Boot Co. has paid a regular dividend of $0.25 quarterly for the last several years. The company has 1 million shares outstanding. Over the next year the company will have to spend $600,000 to service its debt and spend $500,000 in capital expenditures. The company has $600,000 of cash and cash equivalents. Over the next year how much cash must be provided from operations to continue to make the same quarterly dividend payment and still have $250,000 in cash at the end of the year?
A) $1,000,000
B) $1,100,000
C) $1,750,000
D) $2,100,000

Question

Quizplus · Accepted Answer

The company needs $1,000,000 for dividends ($0.25 * 4 quarters * 1 million shares), $600,000 for debt servicing, and $500,000 for capital expenditures, totaling $2,100,000. With $600,000 in cash and a desired ending balance of $250,000, they need $1,750,000 from operations.

Share Price Reactions to Dividend Announcements: the Double Boot Co